A deal aimed at stabilising Japan's banking system fell apart yesterday as the ruling Liberal Democratic party and opposition groups squabbled over what had been agreed.
The collapse of the plan, agreed last week and focused on the problems of the Long-Term Credit Bank of Japan, is a severe blow to the credibility of Keizo Obuchi, prime minister, who had been due to present it at a meeting today in New York with Bill Clinton, the US president.
Dismayed markets generated a `triple sell' of stocks, bonds and currency. The Nikkei index of 225 leading shares tumbled 2.7 per cent to Y13,597.
After the markets closed, Fitch IBCA, the London-based ratings agency, downgraded Japan's long-term foreign currency rating from AAA to AA, blaming the weak and deteriorating banking system, poor policy response by the Japanese government and mounting public debt. It warned gross debt would approach 110 per cent of gross domestic product this year.
The country's banks and other financial companies have bad debts estimated by Moody's, the US ratings agency, to be as high as Y151,370 billion ($1,136 billion).
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